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On a Thursday morning at the Des Moines Embassy Club, leaders of seven companies in industries as vastly different as home building and biotechnology, and in various start-up stages, each gave a 20-minute presentation to potential investors on money needed to bring their product or process to the market.

Despite the diversity of their research and funding needs (mostly in the millions of dollars), these companies shared a common theme of new innovations in clean technology.

Hosted by law firm Dorsey & Whitney LLP, the first-ever Iowa Cleantech Venture Capital and Entrepreneur Event was designed to connect investors to start-ups with the notion that Iowa and the nation are headed toward a new economy based on environmentally friendly ideas and products in nearly every industry.

Iowa has typically lacked the venture capital needed to turn new ideas, especially those developed at research institutions such as Iowa State University and the University of Iowa, into commercialized products or services. But the Dorsey firm believes this may be changing.

“I think venture capital folks that are out on the coasts have realized that there is a lot going on in the Midwest,” said Brian Laurenzo, a partner at Dorsey and one of the event organizers. “I think the reason that Iowa is so well positioned is because of what has happened in the last seven or eight years in Gov. (Tom) Vilsack’s administration, really setting ourselves up as leaders in the renewable fuels and alternative energy areas.”

The conference on Sept. 4 attracted investors from as far away as Salt Lake City and New York, Laurenzo said. Dorsey plans to host similar conferences in the future as well as work on other initiatives that encourage connecting those with resources to Iowa start-ups.

This focus began when former Gov. Vilsack joined the firm in an “of counsel” role a little more than a year ago and builds upon his efforts to foster economic development when he was governor. During his tenure in office, he encouraged the Iowa Department of Economic Development to host venture capital and entrepreneur forums, and in 2002 the state initiated the Iowa Fund of Funds, which will invest $100 million in venture capital funds that consider Iowa investments.

But much of this support so far has come from the public sector, Vilsack said. “I think it’s now up to the private sector to sort of parallel and match that.”

Rolling the dice

The main challenge for investors in this new green sector is determining which ideas will actually be marketable. Laurenzo said many start-up companies in Iowa are at the point of testing their ideas, but need capital just to put demonstration projects together. Meanwhile, investors want to see a solid business plan, good management and proven demand for a new technology before they fork over money.

As a growing private equity source in the Midwest, DeWaay Capital Management is looking closely at the green technology movement, especially the biofuels sector, as the next generation of technology develops. But so far, “our exposure to the industry has been fairly minimal,” said Jim Mackay, head of DeWaay’s investment banking group. “We’re seeing more and more people apply and ask about funding, but we’ve yet to pull the trigger on any deals.”

It could complete a couple of investment deals in the next six to nine months, and plans to focus much of its investment in this sector over the next four to five years.

The challenge, Mackay said, is that companies in the start-up stage often have a few ideas of how they can commercialize their new technology, which can take the company in several different directions. The goal is to find a company with a more focused business plan and a management team with a good track record.

“We have not experienced difficulty ourselves in raising capital for good projects,” Mackay said. “Probably a more precious thing is good management and good ideas.” But it is encouraging to have government, a prominent law firm like Dorsey and higher educational institutions all working toward building this green movement, he said.

Tom Steen of Transition Capital Management LLC said he likes going to conferences like Dorsey’s event to learn about new technologies. But he tends to invest in companies that already have operations set up and customers making purchases, because “you can begin to understand whether there’s a market demand for the technology or product,” he said. “A lot of companies are built on a hope or a prayer, but it doesn’t mean the market really wants the product they have.”

He manages a fund that invests in environmentally friendly companies, such as organic food processors, but finds it difficult to see past the green trend, which he compares to the “dot-com frenzy,” to find companies that will last over the long term.

“The key,” Steen said, “is determining whether the niche is going to last long enough for investment capital to work into it.

“I think the reality is that there is plenty of investment capital to go around, but we have a shortage of companies with traction or durable business models. It’s very hard for investors to see how capital can go in and how capital can be extracted later on.”

Filling the gap

The seven start-up companies that presented at the Dorsey conference on Sept. 4 were just “the tip of the iceberg of what’s happening in the state,” Vilsack said, but they offered a well-rounded picture of how clean technology affects every industry and what kind of capital is needed to turn concepts into cash flow.

Vilsack said the goal is to create a new economy based on clean technology that supports a middle class, which has been in jeopardy as more jobs are outsourced overseas. He points out that Iowa has seen steady economic growth of 2 to 3 percent because of these new ventures, versus states that have experienced growth because of huge influxes of residents. Ethanol alone, he said, offers new opportunities in enhancing production, developing byproducts such as feedstock, constructing plants and creating new energy sources to power plants and lower costs.

The development of this new economy is not just fueled by innovation, Vilsack said at a luncheon presentation at the venture capital event, but also by regulatory pressures that are starting to build at the federal level, litigation and international demands. The Northeast is implementing a cap-and-trade system on utilities to reduce carbon-dioxide emissions, and California is establishing many requirements on energy use, recycling and other activities. Iowa has taken the route of offering incentives for these efforts rather than regulation, Vilsack said.

The impact of this movement on Dorsey could also be profound, with green issues extending into every area of law, from financing to mergers and acquisitions to intellectual property.

“Our job is to be a connector,” Vilsack said. “Our job is to help people find the resources, find the technical expertise, find the legal help, trying to convey a sense that we are here to help and we want to help and think these companies in this area are the future.”